[Edaily kyoungeun kim Reporter Kim Hyung-il] Investor deposits—which represent idle funds in the stock market—have fallen below 90 trillion won, hitting their lowest level in the past six months. The balance of margin loans, used to buy stocks with borrowed money, is also declining rapidly. While this signals a freeze in investor sentiment, some interpret it as a sign that the market is nearing a bottom, given that most leveraged positions have been unwound.

According to the Korea Financial Investment Association on the 26th, investor deposits totaled 88.6842 trillion won as of the 22nd. This is the lowest level since January 13 (88.0489 trillion won), when the year’s lowest figure was recorded. Compared to the figure on the 1st (104.6377 trillion won), the amount has decreased by nearly 16 trillion won in just three weeks. Considering that the balance remained in the 130 trillion won range during the stock market boom in May and June and had swelled to 139.6948 trillion won on June 4, this represents a 36.5% (51.0105 trillion won) drop from the peak.

Deposits for exchange-traded derivatives, such as futures and options, also fell to 35.0634 trillion won, nearly halving from the peak of 64.2204 trillion won reached on June 23.

The balance of margin loans—where investors borrow money to invest in stocks—is also declining rapidly. As of the 22nd, the total margin loan balance stood at 30.3633 trillion won, down 21.4% (8.2695 trillion won) from this year’s peak of 38.6328 trillion won on June 24. By market, the KOSPI saw its balance fall by 20.9% (6.2314 trillion won) from 29.7543 trillion won to 23.5229 trillion won over the same period. In the KOSDAQ market, the balance—which had risen to 11.0505 trillion won on April 29—fell to 6.8404 trillion won, a decrease of 38.1% (4.2101 trillion won) from its peak.

Outstanding balances from commission-based trading—a form of short-term credit trading—also declined. These balances fell from 1.4293 trillion won on the 19th to 1.0474 trillion won on the 22nd, a decrease of nearly 400 billion won over three days. This indicates that aggressive buying at low prices has weakened. The proportion of forced liquidations relative to outstanding balances surged to 7.2% (89.3 billion won) on the 14th, when the KOSPI plummeted, but fell to 1% (10.6 billion won) on the 22nd. The value of forced liquidations alone reached 170 billion won over the two days of the 14th and 15th.

Some market observers interpret this “ebb” of leveraged funds as a signal that the market is bottoming out. They argue that since most of the forced liquidation selling has been absorbed, additional selling pressure has eased. JUNGDAWN Co., Ltd., an analyst at LS SECURITIES, stated, “While the absolute level of open interest is not low, the forced liquidation of marginal positions has passed its peak,” adding, “It is highly likely that this week will mark the point at which the stock index hits bottom.” He cited the surge in forced liquidations in Korea, the sharp increase in short positions by U.S. hedge funds, and the resumption of U.S. corporate share buybacks in November (with an approved total of $1.3 trillion) as signals of a “sell-off climax.”

The intensity of foreign selling is also waning. While foreign investors had net sold 209.455 trillion won on the KOSPI from the start of the year through the 23rd, net selling—which averaged 2 trillion won daily from the 1st to the 15th of this month—fell sharply to a total of 400 billion won over the six trading days from the 16th to the 23rd.

However, cautious views persist that it is still too early to be optimistic about a sustained rebound. This is because retail investors, who have been absorbing foreign selling pressure, have reached the limits of their buying power. Retail investors made net purchases of 104 trillion won on the KOSPI over the six-month period from March to August this year; the weighted average purchase level for these net purchases is around 7,100 points, which is 22% higher than the closing price on the 23rd (5,550.3). The share buybacks by SamsungElectronics(005930) andSK hynix(000660), which had been propping up the index since August, have also ended.

Lee Sang-yeon, an analyst at ShinyoungSecurities, said, “Retail and institutional investors are in a position where it is difficult for them to make directional purchases, so they ultimately have no choice but to rely on foreign investors.” He added, “Since foreign investors tend to buy in bulk on days when there is positive news rather than on a regular basis, we will likely have to wait until this week’s earnings reports from Big Tech and domestic semiconductor companies, as well as the U.S. midterm elections on November 3, to confirm the trend.”

This week, the Federal Open Market Committee (FOMC) meeting is scheduled for the 27th and 28th (local time), along with earnings reports from Alphabet, Microsoft, and Amazon, followed by earnings announcements from SK hynix and SamsungElectronics on the 28th and 29th. Geopolitical risks in the Middle East are also a variable. Analyst Jeong advised, “At the current index level, it is more effective to respond from the perspective of a technical rebound—capitalizing on the climax of selling and short covering—rather than joining the panic selling.”

The trend among securities firms to reduce margin lending limits is another factor that could affect retail investors’ leveraged trading. Starting on the 26th, Shinhan Investment Securities reduced the stock-specific margin lending limits for SamsungElectronics and SK hynix from 2 billion won to 300 million won. This does not involve forcibly reducing the holdings of investors who previously exceeded their limits, but it may limit the leverage available to investors seeking to purchase these two stocks on margin for the first time.

A securities firm official stated, “Margin buying tends to increase when stock prices are at their peak, but when prices fall, people are actually reluctant to buy stocks,” adding, “Even though investors believe they should buy during a downturn, there is a strong tendency to wait and see before making a purchase.” The official continued, “When the market is ranging sideways with no signs of a rebound, as it is now, not many people will want to buy stocks on margin,” adding, “Only when there are signs that stock prices are set to rebound will the number of investors making additional purchases on margin increase.”